Product quality risk in supply chain

Tse and Tan (2009) [1] identified the concept of “Product Quality Risk in Supply Chain” as:

Inherent quality problems (i.e. raw materials / ingredients / production / logistics / packaging) in any of the supply members trigger a domino effect that spread through a multi-tier supply network. For this reason, it is hard for a network member to keep track of who did what, and when, to the final quality of the products. The product that a focal firm sells to the consumer comprises components made by the focal firm and the suppliers. When the product breaks down due to defects in either the firm’s component or the supplier’s component, the firm has to bear the consequences.

Thus, product quality risk is an inherent part of the supply chain risks. In other words, it tends to comprise some or all of the risk elements, such as operational risk, disruption risk and reputational risk. For example, when lead was found in their toys, it tarnished Mattel’s reputation, and disrupted the supply of its products in the market.

In the literature, the concept of product quality risk has not been fully investigated. Although Zsidisim (2003) [2] stated that quality risk includes the risk of producing unsafe products that can harm the consumer, even when these defects are caused by another firm or inherited from a sub-contractor. However, neither PQR nor its domino effect in the supply chain have been thoroughly studied.

The product quality risk in global supply chain concept, though similar to “product harm crisis” (defined as defective or dangerous products) (Dawar & Pillutla, 2000)[3] and “moral hazard problem” (defined as the outcome of asymmetric information, imperfect observability in supplier's quality) (Hwang et al., 2006),[4] are not about the risk of product quality in a global supply chain context.